Experts recommend caution to car buyers
CITYWIDE — Experts say there are no short cuts to a sweet car deal, but crunching the numbers and reading the contract closely will help consumers make sure they aren’t taken for a ride at the dealership.
Six former Honda of Santa Monica employees who allegedly bilked hundreds of thousands of dollars from customers are set to enter a plea today on charges of cheating and defrauding customers.
The case has prompted some experts familiar with the auto industry to advise consumers on how they might avoid being victims of contract scams.
The alleged scam at Honda of Santa Monica, which officials say occurred from 2000 to 2002, involved the car dealership’s sales representatives tacking on charges of “theft etch” to customers’ contracts without their knowing it. Theft etch marks a vehicle’s parts with traceable numbers in the event of a theft.
Los Angeles Deputy District Attorney Dana Aratani, who works in the consumer protection division, said more than $500,000 of theft etch had been sold at Honda of Santa Monica, which would show up on the sale contract as a VT registration charge.
Ali Asghar Hussain, Hamid Reza Khaki, Yaprem Zohrab Yaralian, Ahtamet Uersunthornwattana, Yaser Alkasem and Thomas Holterhoff all face felony counts related to the overcharging of customers, according to the Los Angeles District Attorney’s Office, which filed a felony complaint in September. Holterhoff is being charged, but an arrest warrant has not been issued for him.
While a car is one of the most expensive investments consumers can make, there are tricks of the trade that maximize sales representatives’ commissions and dealership profits, which can be easily overlooked by car buyers or lessees if they aren’t careful, experts say.
Jeff McGrath, a deputy district attorney involved with the Honda of Santa Monica case, said there is no sure step to be certain a car dealership won’t attempt to take advantage of consumers. However, it’s important for prospective buyers to do their homework.
“Research the vehicle and know the appropriate interest you’d have to pay based on your credit rating before going into the dealership,” McGrath said. “That way you’ll know what you ought to be paying up front and not have to rely on what the people selling the car are telling you.”
Generally speaking, McGrath said car buyers can expect to pay the sticker price plus an additional 10 percent for taxing and licensing fees. That means if the sticker price on a car is $20,000, a customer can expect to pay a total of $22,000.
With that final price in mind, the potential car buyers can calculate what their monthly payment will be.
McGrath said it’s the monthly payment of which people need to be cautious.
“Notice how salespeople keep asking you over and over again how much of a monthly payment you can make,” McGrath said. “They try to focus you away from the actual price, which they then inflate.”
McGrath said one easy way to inflate payments is for dealerships to charge customers a higher interest rate for buying a vehicle through in-house financing services.
“They’ll tell you your credit rating is lower than it really is so they can charge you more,” McGrath said.
In the case of Honda of Santa Monica, buyers would purchase a vehicle after coming to a certain agreement with the salespeople. Then — if they noticed — there would be an additional charge of theft etch on the purchase contract.
“The add-on would appear as ‘VT registration,’ which made it look like the payment was going to some type of government agency,” McGrath said. “There’s no such thing.
“The problem is, a buyer sits in a room for six hours and by the time he actually has the car, he figures he has the payment he wants and doesn’t bother to read the final contract.”
McGrath said leasing a vehicle can be even worse, since the lessee is exposed to more liability issues. That is especially true if the vehicle no longer qualifies for its manufacturer warranty. In that case, if the vehicle breaks down, the person renting the vehicle has to pay for the repairs, McGrath said.
GAUGING PRICE GOUGING McGrath said he is investigating other cases of fraud and price gouging among car dealerships. He said it’s a common practice.
A former employee of Sonic Automotive, which owns Honda of Santa, said people would be surprised just how common it is for dealerships to slyly price-gouge customers.
“It happens all the time,” said the employee, speaking on the condition of anonymity. “The cars coming into the dealership already have the theft etch on them.
“It happens in every dealership,” the employee said. “That’s how the dealerships make the their money.”
The employee said car salespeople are penalized by the dealership if they fail to include theft etch and other add-ons.
As a result, the contract that people believe they are agreeing to at the sales counter is often different than the one they sign once the contract makes its way through the finance department, he said.
Honda of Santa Monica declined to comment on the case or its sales practices. However, in the past, dealership representatives said the employees involved have been fired and their tactics are no longer used.
Don Mushin, general manager of Santa Monica Lexus, has a policy in place that seeks to clarify for customers exactly what add-ons they’re buying and for what cost.
“We operate on full disclosure with a menu of options and costs that the customer is presented 100 percent of the time,” he said.
Mushin said Santa Monica Lexus is one of four Santa Monica car dealerships all owned by the Sullivan Group. The others include Toyota, Mitsubishi and Volkswagen dealerships, he said.
The local Lexus dealership — which is one of the top sales performing facilities for that car brand in country — is audited once a month by a company that looks at one third of all sales contracts to make sure they were properly executed, Mushin said.
Another former car sales representative who read about the Honda of Santa Monica indictment out of state contacted the Daily Press to unveil how such scams work.
He said the policy went far beyond a few sales and finance people at a local dealership.
“It goes all the way up the food chain,” he said.
The salesperson described how national auto retailers, such as Sonic and Auto Nation, force employees to charge the add-ons for the sake of higher profits. If the employees don’t include add-ons, they get charged back on their commissions, he said. He said the scam generates big money, estimating that if the company charges $200 worth of false registration on seven cars at 700 dealerships, it makes about $1 million a day.
“People don’t read, that’s the biggest mistake they could make,” the employee said. “‘A touch of class,’ it’s the oldest scam. People are getting ripped off.”
Originally published in the Santa Monica Daily Press print edition on October 31, 2005. Read the original PDF.